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SQE - BLP > WS9 - Insolvency (1) - Personal Insolvency > Flashcards

WS9 - Insolvency (1) - Personal Insolvency Flashcards

1
Q

Introduction to Personal Insolvency: What two types of formal personal insolvency procedure do we consider?

A
  • Individual Voluntary Arrangements (IVA’s) and
  • Bankruptcy, including the challenge of voidable transactions by individuals
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2
Q

Introduction to Personal Insolvency: What must indiviudals do in relation to their financial situation?

A

As with directors, must recognise when they are in financial difficulty.

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3
Q

Introduction to Personal Insolvency: What options are available to those in financial difficulty?

A

Similar to companies:
(1) Do nothing
(2) Do a deal with some or all of their creditors
(3) Seek the making of a bankruptcy order by the court

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4
Q

Introduction to Personal Insolvency: What is bankruptcy?

A

A collective insolvency procedure enabling an orderly collection, sale and distrubtion of an insolvent individuals assets of rht benefit of all that individuals creditors.

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5
Q

Introduction to Personal Insolvency: What is an IVA?

A

This is often alternatie to banruptcy and is also a collective procedure.

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6
Q

IVA - a) Introduction: What is this similar to and what does it allow?

A
  • CVA for companies
  • It is an arrangement in which debotr makes a proposal for a compromise of their liabilities with their creditors and will usually involve them paying part and/or hacing a longer period than that contracted.
  • Flexible procedure which can be tailored t debot and usually requires them to pay funds to IVA supervisor out of income or assets or both which supervisor then paid to creditors based on their determined claims.
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7
Q

IVA - a) Introduction: Who will an IVA bind?

A

If approved by requsitve & of creditors, the IVA binds the debtor and all creditors to the terms of the IVA.

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8
Q

IVA - a) Introduction: Who must be appointed as supervisor?

A

Licensed insolvency practitioner.

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9
Q

IVA - a) Introduction: How long can they last?

A

Any length of time but typically in practice, 3-5 years.

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10
Q

IVA - b) Setting up an IVA: Step 1 - What must debtor draft?

A

Proposal for compromise of their liabities and statement of their affairs, usually with assistance of insolvency practioner who is known as a nominee at this stage.

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11
Q

IVA - b) Setting up an IVA: Step 2 - What must nominee then do?

A

They submit a report to court stating their opinion as to if debtor proposal has reaosnable prospect of being approved and implemented and if creditors should be asked to vote on it.

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12
Q

IVA - b) Setting up an IVA: Step 3: What can debtor apply for?

A
  • An interim order
  • If court grants this order, brings about a moratorium which freezes existing or proposed bankruptcy and other proceedings and legal process (including execution, LL right of peaceable reentry or distress for rent)
  • A court order then needed for creditor to exercise any right or remedy otherwise restricted and this can las for 14 days which court can extend.
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13
Q

IVA - b) Setting up an IVA: Step 4: What is the voting positon to become binding?

A
  • Must be approved by creditors holding at least 75% by value of total debt owed to creditors voting on proposal.
  • But if that approval is given, it will not be effective if more than half of total value of creditors who are not associated of debtor vote against.
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14
Q

IVA - c) Effect of approval fo IVA: Who will it bind?

A
  • Debtor and all unsecured creditors but simiaarly, an IVA cannot bind a secured creditor or preferntial creditor without their cxonsent.
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15
Q

IVA - c) Effect of approval fo IVA: What will nominee become?

A
  • Supervisot of IVA
  • Then responsible for implementation and supervisor can apply to court fo directions and must report to court periodically.
  • If debtor then fails to comply, supervisor usually has right under terms of IVA to petition for bankruptcy.
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16
Q

IVA - c) Effect of approval fo IVA: What happens at the end of IVA?

A

If debtor has complied with the terms of the IVA, such as making necessary payments, then creditros will have to write off any balance of their pre-IVA debts against the debtor.

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17
Q

IVA - c) Advantages of an IVA: What are they?

A
  • Alternative to bankruptcy and avoids stigma and restrictions associated with it.
  • Can bind all unsecured creditors; and
  • Moratoirum is avialable if an interim order made.
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18
Q

IVA - c) Disadvantages of an IVA: What are they

A
  • May last longer than bankruptcy
  • It cannot bind a secured creditor of prefential without their consent.
  • Can be expensive and time consuming and uncertainty as to if it will be approved by creditor.
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19
Q

Bankruptcy: What is the equivalent of and how does it begin?

A
  • Company Liquidation
  • It begins by a bankruptcy petition being presented, usually by a creditor but sometimes the debtor.
20
Q

Bankruptcy - a) Petition grounds and requirements - i) Creditors Petition: What does this require for creditor to petition?

A
  • Ground is that at the time of presention of peittion, the debt is one of which debtor appears unable to apy or has no reasonable prospect of paying.
  • Debt owed is for an unsecured liquidated sum exceeding £5k.Debtor must be domiciled or present in Enfland or Wales.
21
Q

Bankruptcy - a) Petition grounds and requirements - i) Debtors Petition: What does this require for debtor to petition?

A
  • Only ground for this is that debtor unable to pay their debts.
  • Petition must accompanied by statement of affirs setting out assets and liabilities.
22
Q

Bankruptcy - b) Inability to pay debts and bankrptcy order: How is this evidenced?

A
  • A statutory demand that has neither been saisfied within 3 weeks from service of that demand nor set aside by court or
  • An unsatisfed execution of a judgement or of another legal process.
23
Q

Bankruptcy - b) Inability to pay debts and bankrptcy order: What if court satiafied the above met?

A
  • They have discretion to make a bankruptcy order.
24
Q

Bankruptcy - b) Inability to pay debts and bankrptcy order: What happens on the making of an order?

A
  • Official receiver will become first trustee in the bankruptch (the trustee) unless court orders otherwise.
  • A majority of creditors can seek appointment of another as trustee, but they msut be licensed insolvency practitioner.
  • NOTE - If there are limited funds in bankruptcy estate, it will be difficult to convince anyone other than official receiver to act as there will not be sufficient funds to pay them.
25
Q

Bankruptcy - b) Inability to pay debts and bankrptcy order: What is debtor prohibted from after order?

A
  • Acting as director or being involved in management of company
  • Obtaining creditor over £500 without disclosing bankruptvy
  • Giving gives
  • Practiving in certain conditions
  • They are also deprived of ownersihp of their property except for reaosnable domestic needs.
26
Q

Bankruptcy - c) Trustee - Powers/Duties: What happens to bankrupts estate after order?

A
  • Vests in the trustee immediately and automatically by operaion of law upoj making of the bankrptcy order.
  • This means bankrupt person will have to give up possesion or give access to their assets (including those falling into the estate after the order)
27
Q

Bankruptcy - c) Trustee - Powers/Duties: What powers does the trustee have?

A

Wide statutory powers to:
* Sell or otherwise deal with assets in estate
* Carry on the bankrupts business
* Selling their assets and granting security over them
* Power to collect in assets, including those which may swell the estate such as challengingcertain undervalue or preferences transactions.
* Have the right to disclaim onerous property or contract to bring laibilties to an end and most important would be lease of land/property.

28
Q

Bankruptcy - c) Trustee - Powers/Duties: What will trustee need to do?

A
  • Ask creditors to prove their cliams against bankrupt
  • So, if creditors will want to claim, they must provide evidence to support their claims so trustee can determin amount of creditors claim and a court can decide the matter if creditor does not agree with trustee determiantion.
29
Q

Bankruptcy - c) Trustee - Powers/Duties: What msut trustee do when propsing to pay a dividend to creditor?

A
  • Give notice to the creditors who have proven their debts
  • This notice shoudl state amount of sale proceeds received from sale, any deduction made and amount of any dividend they expect to receive.
  • These dividends will need to be paid in line with the statutory order of priority.
30
Q

Bankruptcy - d) Statutory order of payments: What is the order?

A

It differs from corporate insolvency and is:
* Step 1: Secured creditors (but limited to value of security itself and ranking with ordinary unsecured creditors for any amount not recovered under securuity)
* Step 2- Expenses of bankruptcy including trustee remuneration
* Step 3 - Two tiers of prefential creditors (identical to ones on corporate winding up)
* Step 4 - Ordinary unsecured creditors
* Step 5 - Statutory interest
* Step 6 - Debts owed to a spouse (note they rank alst among other creditors) and
* Step 7 - finally, any surplus payable to the bankrupt

31
Q

Bankruptcy - e) The bankrupts duties: What duties do they owe?

A

They owe a number to the trustee including duty to provide information and assistance to trustee to allow them to carry out their functions and S333 of IA sets out they should:
* Give trustee such information to his affairs
* Attend on trustee at such times and
* Do all such other things

As the trustee may for purposes of their function, reasonably require.

32
Q

Bankruptcy - e) The bankrupts duties: What if they fail to comply with these obligations?

A

It is criminal offence and could face imprsonment for up to two years and unlimted fines where there has been default.

33
Q

Bankruptcy - f) Bankruptcy Discharge: When will bankrupt be discharge?

A
  • Generally, automatically after maximum period of one year.
  • Discahrge means they are realised from most of the bankruptcy debts and bankruptcy related restrictions.
34
Q

Bankruptcy - f) Bankruptcy Discharge: What can the official receiver or trustee do?

A

Apply for an order suspending automatic discharge if they fail to comply with their obligations above.

35
Q

Bankruptcy - f) Bankruptcy Discharge: Can they discharge within less than a year?

A

Yes, where official receiver or trustee files a notice stating that bankruptcy does not require investigation or that thye have concluded any investigations within one year period.

36
Q

Bankruptcy - g) Bankruptcy restriction orders/undertakings: What can Sec of state or official receiver acting on sec of state direction apply for?

A
  • Bankruptcy Restriction order if court considers it appropiate having regard to conduct of bankrupt before or after the bankruptcy order but generally applcation must be made within year of stary of bankruptcy.
37
Q

Bankruptcy - g) Bankruptcy restriction orders/undertakings: What conduct is taken into account for a BRO?

A
  • Failure to keep records
  • Entering into preferences or transaction at undervalue
  • Fraud and incurring debt without reasonable expectation to pay
38
Q

Bankruptcy - g) Bankruptcy restriction orders/undertakings: How long can BRO operate for and what does it require?

A

Period of two and 15 years and for duration of the order, bankrpt may not act as director or obtain credit of more than £500 without disclosing they are subject to BRO

39
Q

Bankruptcy - g) Bankruptcy restriction orders/undertakings: What happens on breach of BRO?

A

It is a criminal offence punishable by fine are or improsnment.

40
Q

Bankruptcy - g) Bankruptcy restriction orders/undertakings: What can bankrupt offer sec of state instead?

A

Bankruptcy restriction undertaking (BRU) which if accepted, has same effect as BRO.

41
Q

Voidable transactions - a) Introduction: What power does trustee have if bankruptcy order in place?

A

Power to challenge voidable transactions and will do this with aim of increasing assets avialable to creditors.

42
Q

Voidable transactions - a) Introduction: What are the voidable transactions available to the trustee?

A
  • Transactions at an undervalue
  • Preferences
  • Transactions at undervlaue defauding creditors - See next WS for more info
43
Q

Voidable transactions - a) Introduction: What if any of the above are met?

A

If requirements met, court has power to make such roder as it thinks fit to restore position of what it would have been if not the transaction or preference.

44
Q

Voidable transactions - b) Transaction at an undervalue - s339: What is the overview for a TUV determing relevant time, position for insolvency and presumptuon available?

A
45
Q

Voidable transactions - c) Preferences s340 What is the overview for a preferences determing relevant time, position for insolvency and presumptuon available?

A

SQE - BLP (14 decks)

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